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Can a Smaller Practice Survive? The Anesthesia Question of the Day

March 25, 2024

In this era of mergers and aggregation, anesthesia practices nationwide are contemplating their futures, and many are struggling with the notion that only mega-practices survive. Is it possible to maintain a focused niche practice that only provides services to one facility or a narrowly defined market or are such practices dinosaurs doomed to fail or to be swallowed up by the nation’s mega-practices? Is quality care enough? Is good customer service all it takes to be successful?

These are good and important questions. As is often the case, big may be better, but it is no guarantee of success. The devil is in the details.

Most successful practices are based on three fundamental objectives:

  • Financial, whereby the goal is to maintain profitability so that the practice can continue to recruit and retain an appropriate team of qualified providers.
  • Security, such that the practice has good contracts with its customers that ensure a reasonable future.
  • Flexibility that allows the practice to anticipate and be responsive to the evolution of the market.

While the size of a practice may play a part in assessing outcomes, it is not determinative in the achievement of all three objectives.

The Financial Challenges of Large Practices

Conventional wisdom holds that the two essential keys to financial viability are good contracts and diligent collections. While these criteria continue to be essential components of exemplary practice management, they are only one part of the profitability puzzle. As is true of any business, profitability requires assiduous monitoring and management of both income and expenses. The reality is that very few practices generate enough fee-for-service revenue to cover the cost of providing the level of service that customers have come to expect, hence the need for financial support from facilities.

As one might expect, it is not possible to manage a large practice the same way one manages a small practice. There may be more revenue, there are also many more expenses. Currently, there is a manpower shortage for anesthesia. This means that not only is it harder to hire and retain qualified providers but knowing how much to pay them and what makes your practice a desirable place to work can be tricky. We have known practices that have lost nearly 30 percent of their providers in a single year. That kind of challenge places an incredible stress on management.

Since it is rare that the practice collects enough money from patients and their insurance, the practice manager must approach the facility for financial support. As challenging as such conversations can be, having to deal with multiple administrations can be an order of magnitude more complicated. It is important to understand that the new game is all about getting and keeping contracts. Economists always remind us that there is declining productivity on the far side of the supply curve. The more facilities a practice covers, the more challenging it is to maintain the same level of profitability across the board.

Gaining and Maintaining Market Share

While anesthesia providers used to pride themselves on the quality of care they provided, superior clinical performance is now a given. Customer service is what determines the strength of a contract. While it is true that anesthesia providers do more to determine the quality of the patient’s surgical experience than the surgeon, this is only the beginning of what today’s hospital administrators expect from their anesthesia departments. As is true of any organization that is expanding, it is increasingly difficult to ensure a consistent level of care and service. Larger anesthesia organizations find themselves having to invest in new strategies and technology to ensure a consistent product.

Given the vast experience and powerful database that many anesthesia practices now command, hospital administrators have started to view anesthesia providers as critical business partners. Gone are the days when an anesthesia group was reluctant to share its data with administration. Being seen as a problem solver requires a whole different level of interaction with the members of the C-suite.

Anticipating the Future

The only constant in today’s medicine is change. Change management is now an essential survival skill. The reason so many anesthesia practices are being bought or taken over by the hospital administration is simple: they refuse to adapt to a new set of circumstances.

Just as anesthesia providers rely on a data stream from a variety of clinical probes and monitors to manage patients safely through the trauma of the surgical experience, so, too, their practices should be monitoring the viability of their practice. While the Coronis management reports are an essential tool to track the financial status and progress of the practice, it is also helpful to conduct a periodic SWOT analysis to assess the strengths, weaknesses, opportunities and threats the practice should me exploring.

Most management data is non-normalized; that is, it simply presents key trends and production patterns as they are captured. While it can be useful to know how many cases were performed or how many billable units were booked, this does not allow for comparative analysis. To accomplish this, the data should be normalized. Key metrics such as average billed units per location day allow the practice to compare various sites and to compare the group to other practices. Such an approach is essential to evaluate productivity and profitability.

If a practice chooses to expand and grow, the objective must be to use the growth to improve its key normalized metrics. If a practice takes on new surgical sites and the average yield per unit drops, this would defeat the purpose of growing the practice. Many a practice has taken on new sites only to realize over time that they had a negative financial impact on the practice as a whole. These groups had to learn the hard way that bigger is not necessarily better.

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